NextCard Inc., the Internet-based credit card company, continued its reign as the beauty queen of the industry last year by picking up $1 billion of receivables.

Though it continues to draw compliments - on Wednesday, for example, Gomez Advisors once again named it the No. 1 online card company - there may be signs its beauty is fading.

With the economy slowing, analysts question how the unseasoned company will fare when its credit quality declines. And though other U.S. card companies have found growth abroad, NextCard's long-anticipated U.K. expansion is still just a gleam in its eye.

NextCard, which went public in May 1999, is predicting that by yearend it will break even - something few Internet companies have managed to do.

"The Internet is a growth market, and we have a leadership position in that growth market," said John Hashman, president and chief executive officer of NextCard, in a telephone interview.

The Internet has let NextCard, which is a Visa issuer, acquire customers less expensively, Mr. Hashman said. While other issuers pump the direct mail channels, NextCard has stuck with its banner ad strategy and found to its delight that the costs of advertising on the Internet have fallen as much as 40% from a year ago.

NextCard says that it pays about $65 to acquire a card account, compared with the industry average of about $100.

The saturation of credit card offers in the real world and the lower costs of banner ads have been "fantastic for us," Mr. Hashman said. These factors "allow us to grow more efficiently" and are among "the many reasons why we're confident the fourth quarter will bring us to the break-even point."

Last year it brought out numerous new products, including a secured card, an instant financing network for large-ticket items from certain Web sites, and a retooled e-wallet.

NextCard's chargeoff rate is relatively low - 3.1% - but Mr. Hashman said he expects it to rise to the industry average of 5.5% to 6% as the company grows and its portfolio "matures."

Executives say they have been careful about extending credit, and their customers tend to be fairly affluent. NextCard's average secured-card holder earns about 40% more than most secured-card holders, Mr. Hashman said. Eighty percent of its secured-card holders have a banking relationship, and almost 90% have Internet access at home, he said.

Secured-card applicants with Internet access can help NextCard save money on customer service, Mr. Hashman said. "If we can get a lot of people to self-service over the Internet, that will accrue to our profit margin."

NextCard is thinking about issuing a smart card. Mr. Hashman said such a card could track purchases and rewards points and notify cardholders of merchant discounts. "We'd love to think about it in 2001, but it's not time-based. What's important is coming out with something that's meaningful for people."

One Internet product NextCard does not intend to issue is disposable credit card number technology. Its customers are "very Internet savvy," he said. "In many cases they're past security concerns."

Not everything has gone the company's way. NextCard had planned to expand into the United Kingdom this year but has now decided to wait until next year at the earliest.

Jeremy Lent, the founder and chairman of NextCard, said in a conference call with investors last week, "We had initially thought of the U.K. as a stand-alone operation and over the longer term integrate international expansion."

Instead, the company has decided to integrate the United Kingdom into its overall international expansion strategy, Mr. Lent said. "It's a strategic change that really has no meaningful impact on the financials."

NextCard's managed loans last year rose 215% from a year earlier, to $1.3 billion. This does not take into account attrition from cardholders' paying down their balances, the company said.

Its customer base rose 222%, to 708,000, but the company lost $19.4 million for the year.

Despite executives' confidence in NextCard's credit quality, analysts say this danger is the company's chief land mine.

"A company can build reserves, they can go after high Ficos, but we don't really know how that portfolio is going to perform until it has seasoned," said Jennifer S. Scutti, a senior financial services analyst at Prudential Securities Research in New York. With the onset of an economic slowdown, "credit quality naturally deteriorates," she said.

Nevertheless, Ms. Scutti said, she believes the company is going in the right direction. NextCard has consistently beaten its earnings guidance and has advanced its projected break-even date, she said.

Tim Butler, a senior research analyst at Pacific Crest Securities in Portland, Ore., said his company is taking a more conservative outlook, predicting that NextCard will break even next year. However, the company has a "sound model," he said.

"If you take a look at their growth trends in customer accounts, revenues, and assets under management, all of those growth metrics have basically exceeded the expectations of the Street since they went public," Mr. Butler said.

Still, investors are not ready to embrace the company's stock because of the potential credit-quality problem, he said. Until then, it will continue to trade at a "heavy discount relative to its peers."

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